[This article is written for BTSE’s Christmas Contest and expresses a personal reflection on the upcoming BTSE token which gets issued on Bitcoin’s Liquid sidechain. The views presented are not related to the content of the Bitcoin Takeover Podcast and do not necessarily express the opinions of the show’s sponsors]
When the BTSE exchange token was announced in early December 2019, the reactions were mixed. In the true toxic maximalist spirit, many bitcoiners have dismissed the project as the practical equivalent of an ERC20 utility token that’s issued on the Ethereum blockchain. Some even argued that the BTSE token is just an imitation of Binance’s BNB, and Blockstream’s Liquid federated sidechain is better suited for other purposes (such as enabling confidential transactions between exchanges, and freeing up precious mainchain block space).
However, Bitcoin maximalism can’t really reach its final goal until every other altcoin becomes redundant. Therefore, dismissing projects that get built on top of Bitcoin just because they resemble the more or less successful byproducts of other protocols is counterproductive and against the free market and permissionless spirit of Bitcoin. As long as the base layer security gets preserved and innovation happens on secondary strata, the sky’s the limit.
As a project, Ethereum holds a few merits for pioneering use cases that were not feasible in earlier stages of Bitcoin development. The altcoin project has experimented with tokenization through various standards (ERC20 being the most popular of them) and has managed to create market demand for this type of trackable asset virtualization.
Nonetheless, as every Bitcoin maximalist will tell you, the Ethereum network isn’t very secure: not only that it doesn’t have the hash rate as Bitcoin, but it also tends to hard fork arbitrarily and lose important smart contracts in the process. In the world of traditional finance, robustness and predictability are two of the most important qualities to earn trust – and thanks to Blockstream’s Liquid sidechain project, we can once again find a reasonable application for the “Bitcoin fixes this” meme.
Liquid provides a simpler and more elegant alternative to asset tokenization. From the very beginning, it doesn’t claim to be decentralized. It’s the tradeoff that developers embrace from the very beginning, and it can also be a factor which earns corporate trust – companies that tokenize their assets don’t care much about allowing anyone to run a validating node, and would rather focus on the other technological advantages such as traceability, security, convenience, and settlement speed.
The assets generated on the Liquid network get locked on Bitcoin, but operate on Blockstream’s parallel network – so the sovereign Bitcoin node runners don’t have to worry about having their storage filled with non-BTC transactions. And thanks to the Simplicity smart contract language and the native implementation of Confidential Transactions, it’s very convenient for companies to ditch Ethereum.
Now let’s get to the subject matter: the BTSE token. In hindsight, it bears a striking resemblance with BNB: it has a total supply of 200 million units and offers significant discounts for on-exchange trading fees. However, BTSE aims to attain greater network security from the very beginning while also supporting the Bitcoin network. Maybe that the token will only serve the needs of a few thousands of users in the beginning, but the use case is legitimate and extends beyond pure ICO mania-style speculation.
Also, it’s worth noting that the companies doing tokenization on the Ethereum network will be paying close attention to the technical and financial performance of the BTSE token, as it sets a historic precedent. Depending on the project’s success, Bitcoin’s sidechain will either attract more business opportunities and start overtaking Ethereum at a greater scale, or it will receive further development while Ethereum and its clones amass market capital.
BTSE’s utility token spearheads the beginning of a new standard war, and the stakes are really high. Ethereum vs Liquid is this generation’s VHS vs Betamax, and it’s essential for Bitcoin’s supremacy to acquire this billion-dollar segment. Altcoins won’t disappear just because speculators lose interest, it’s important for Bitcoin to also make them obsolete and redundant.
If the use case of a cryptocurrency project cannot be justified by utility and efficiency, then the protocol will definitely die out. Therefore, it’s mandatory for Bitcoin to make use of its second layers and sidechains in order to deliver tokenization, privacy, scalability, and high throughput.
Through its token, BTSE is a pioneer in the tokenization field and might also become the first exchange to demonstrate Confidential Transactions for tokens. And just like discount vouchers don’t compete with government money but merely facilitate a special promotion, BTSE tokens only allow some users to trade BTC with lower fees. It would be short-sighted to shun a project which aims to extend Bitcoin’s dominance. However, toxic maximalists should keep BTSE under scrutiny to make sure that history doesn’t repeat itself and the practices of the Ethereum-backed ICO era don’t get repeated.
The BTSE token is a big deal and definitely deserves attention for its scope. It spearheads Blockstream’s attempt to overtake Ethereum with Liquid and supports the extension of Bitcoin’s domination. If it succeeds, it will go down in history as one of the phenomena that shifted the dynamics of the tokenization market by bringing down Ethereum. If it fails, we will all learn an important lesson and return with better tools. Bitcoin is here to stay, and everything else exists only until the king expands and becomes more capable.